Democrats, KU law professor say new tax cuts pressure local governments

Democratic Party Chair Joan Wagnon and KU law professor Martin Dickinson discuss income tax cuts Thursday at the Capitol.

TOPEKA – The income tax cuts signed into law by Gov. Sam Brownback will force cuts to important public services and put pressure on local governments to raise property taxes, Joan Wagnon, a former secretary of revenue and current chair of the Kansas Democratic Party, said Thursday morning.

Eliminating income taxes on many businesses and cutting individual rates will create an imbalance in Kansas’ tax system and put an increased burden on the poor, she said.

Wagnon pointed to several studies that dispute the notion pushed by Gov. Sam Brownback’s administration that states with no income tax have better economic growth than those with higher taxes.

She said Brownback’s tax consultant, Arthur Laffer, cherry-picks data to try to convince state lawmakers that tax cuts are the solution to economic problems, and she said that Laffer’s philosophy has been disproved many times over.

“This tax plan is part of Laffer’s fairy-tale,” she said.

Martin Dickinson, a long-time University of Kansas law professor, said the cuts that go into effect next year will give Kansas one of the most regressive tax systems in the country because it will create low rates for wealthy people and businesses while likely forcing cuts to services that benefit the poor.

Because the bill eliminates nonwage income taxes for many business owners, it will create disparities in workplaces where bosses who make a lot of money will pay no taxes and their employees who get paid in wages will be paying taxes.

Dickinson, Wagnon and Mark Desetti, a policy director with the Kansas National Education Association, appeared at a news conference two days after Laffer and Brownback appeared at a forum in Overland Park where they boasted that the tax cuts will created thousands of new jobs.

Brownback gave Laffer a $75,000 contract to consult with the state on tax reform efforts earlier this year, and Laffer tried to rally support for a massive tax-cutting plan at legislative hearings during the legislative session. The plan called for reduction of individual income taxes, the phasing out of income taxes on businesses and the elimination of more than a dozen tax credits and deductions, including several popular ones such as the home mortgage deduction and the earned income tax credit that benefits the working poor.

That plan failed to generate support in the House and Senate. But it was advanced to the Senate where it was drastically altered, driving up the cost of the plan. Several Republican senators who initially voted against the bill changed their votes on a second round of voting, approving the bill. Then when the House heard the senate wouldn’t consider a separate negotiated plan, it advanced the bill to Brownback, who signed it.

Starting in January, the plan will reduce individual income tax rates and eliminate income taxes for owners of about 191,000 businesses. The new law collapses state income taxes to two brackets and cuts individual rates to 3 percent for married people who file jointly with income of less than $30,000. Income beyond that will be taxed at 4.9 percent.

Conservatives, including Brownback, project it will drive private sector growth and create thousands of new jobs. Other Republicans and Democrats believe it will force the state to drastically cut important core services, including education and aid for the poor and disabled.

Legislative researchers project it will create a cumulative shortfall of more than $2.5 billion over five years.

A study by the Institute on Taxation and Economic Policy that Laffer disputes calls Laffer’s studies showing low-tax states out-perform others “misleading.”

Revenue Secretary Nick Jordan issued a statement saying the income tax cuts were debated extensively and that Kansas now has pro-growth tax reform that lowers rates for all Kansas families.

“While opponents of tax reform try to roll back the clock with scare tactics and their belief in bigger government, Gov. Brownback is committed to funding core government services such as education, public safety and social service, while also looking forward to job creation and economic growth,” he said. “Kansas is open for business.”